An investor wanting a quick grounding in the challenges faced by pharmaceutical companies could do worse than follow the twists and turns of Indivior’s eventful history.
This Reckitt Benckiser spinout isn’t in the same territory as the pharma majors, but its story contains many familiar elements: blockbuster drugs, battles with regulators, pipeline problems, US lawsuits, R&D pressures, patent expiries and generic threats.
The ultimate goal for any pharma is big revenue blockbuster drugs. Indivior’s bestsellers are opioid-addiction treatments Suboxone and Sublocade, which became market leaders as the US’s opioid epidemic escalated. But no pharma business can escape the generic drugmakers forever and when they began to circle, Indivior’s actions led to allegations by US authorities that it had made “unsupported” claims for its products in order to delay competitors entering its market.
These legal wrangles cost it multimillion dollar settlements. In 2016, multinational GSK had to pay £37.6mn in fines over deals struck to fend off competition in the market for its then bestselling antidepressant.
Indivior has put the episode behind it and invested in R&D to expand its portfolio. New product pipelines are another essential for pharma — heavy reliance on one treatment area is a major risk for drug developers especially as patents begin to expire. But Indivior has discontinued one drug used to treat schizophrenia and has provoked the ire of a major shareholder over its failure to protect Sublocade’s position from aggressive rival Brixadi and to warn shareholders of the scale of the threat.
HOLD: Indivior (INDV)
The pharma group has had a difficult 12 months, writes Mark Robinson.
Its share price has dropped by over 40 per cent, full-year guidance has been downwardly revised, and it suffered a public rebuke from a major shareholder.
By the time it published October’s third-quarter update, the decision had been taken to streamline the group’s product offering and R&D activities, while placing the emphasis on Sublocade, a treatment for opioid use disorder. It has also undertaken measures to reduce operating costs.
Net revenue for the flagship Sublocade product increased by a fifth, but performance was stymied by competitive pressures in the US injectables market. The gross margin contracted by five percentage points to 78 per cent, although it was broadly flat once amortisation of acquired intangible assets are factored into the equation. Taking other adjustments into consideration, operating profit was up by 16 per cent to $312mn (£248mn).
Unfortunately, there are competitive pressures in the OUD market, a point made plain by Oaktree Capital Management in its criticism of Indivior towards the end of 2024. So, with “intensified generic pricing activity” impacting sales of Suboxone (a film that patients place under their tongue), the group is now guiding for a 17 per cent fall in net revenue, the mid point of the target range.
The news sent the shares down by a fifth, leaving them trading at just over half the consensus target rate at six times forward earnings, a reflection of the external challenges faced by management.
BUY: Aviva (AV.)
Profits are rising fast at the insurance company, writes Jemma Slingo.
Aviva has increased its adjusted operating profit by a fifth to £1.77bn, as it prepares to buy insurance rival Direct Line.
Growth has been strong across the FTSE 100 company. General insurance premiums are up 12 per cent at £12.2bn, fuelled by new business wins and “favourable pricing”. Meanwhile, the wealth division reported net flows of £10.3bn, up from £8.3bn last year.
Aviva also reported its highest year of bulk purchase annuity sales, which drove revenue in the retirement business up by a third to £9.4bn. Bulk purchase annuities (BPAs) have become an increasingly important feature of the life insurance market. They are financial products used by defined-benefit pension trustees to offload risk on to players such as Aviva, Just Group and Legal & General. Higher interest rates mean more schemes are now in a position to do this, and life insurers are reaping the rewards.
Aviva expects to remain “active” in the BPA market and thinks volumes will remain at similar levels to those achieved over the past three years — “although given the exceptional market conditions in 2024 those volumes may not be repeated”.
The big news for Aviva, however, is its impending purchase of Direct Line for £2.7bn. The deal is on track to close in the middle of 2025 and management said Aviva will be more ‘capital light’ as a result. This is because the acquisition will shift Aviva more towards motor and home insurance and away from capital-intensive business such as life insurance. About 55 per cent of Aviva’s operating profit came from its capital-light businesses in 2024, but this is expected to rise to 70 per cent after the Direct Line deal.
In the meantime, Aviva has increased its total dividend for the year by 7 per cent to 35.7p a share. As announced in December, however, it has paused share buybacks in 2025 due to the Direct Line deal.
Shares in Aviva have risen by 14 per cent since January, but the main event has yet to come. The acquisition of Direct Line undoubtedly poses risks — integrating two huge businesses won’t be easy, and shareholders won’t react well to delays. However, we like the logic of the deal and the outlook for shareholder returns further down the line.
SELL: Aston Martin Lagonda (AML)
The company expects to post positive free cash flow in the second half of 2025, but significant question marks remain, writes Christopher Akers.
Aston Martin Lagonda said it would cut 5 per cent of its global workforce to support future investment, as the luxury sports car maker pointed to expectations of a “material improvement” in financial performance this year after it delayed its first battery electric vehicle (BEV) again and posted another chunky loss.
The job cuts are forecast to save around £25mn, with half of those coming this year. Chief executive Adrian Hallmark said that “our focus now shifts to operational execution and delivering financial sustainability”.
Wholesale volumes dipped by 9 per cent to 6,030 vehicles in 2024, but improved by 10 per cent in the second half on the back of the company’s new Vantage and upgraded DBX707 and V12 Vanquish models.
The key question for investors is whether sustainable free cash flow can ultimately be generated. The annual free cash outflow worsened to £392mn, but the company expects sequential improvement in 2025 and positive generation in the second half. It also forecasts positive adjusted operating profit generation, helped by mid-single-digit percentage volume growth.
Key to the outlook is Valhalla, Aston Martin’s first mid-engined plug-in hybrid electric vehicle. Deliveries will start in the second half. But the launch of the company’s first BEV is now expected in the “latter part of this decade” after it was previously pushed back to 2026.
Despite significant fundraisings, the losses have kept coming and net debt of £1.2bn is painfully high. The company’s adjusted net leverage ratio shot up from 2.7 times to 4.3 times, year on year.
